The report also indicated the agency found no evidence that community banks and credit unions experienced a decline in debit interchange fees after the amendment went into effect. The FTC is required to submit an annual report on its Durbin Amendment enforcement activities to the Senate Appropriations Committee.

FTC enforcement responsibilities

The Durbin Amendment required the Federal Reserve Board to devise rules to govern debit interchange fees as well as prohibit network exclusivity for debit-card transactions. The new rules cap debit card interchange fees at 21 cents (plus 0.05 percent multiplied by the value of the transaction) plus one-cent for fraud prevention. This rule applies only to financial institutions with assets of more than $10 billion.

In addition to requiring that merchants have a choice of payment card networks through which to route transactions, the amendment also prohibits networks from blocking merchants from using incentives to encourage consumers to use particular (presumably cheaper) payment methods such as cash, checks or other alternate payment methods. Payment card networks can also no longer prevent merchants from setting a minimum dollar value for accepting credit cards as long as the minimum value does not exceed $10.

Card network investigation

The report revealed that the FTC held a series of merchant meetings at which retailers voiced concern over new card network rules and fees introduced in the fall of 2011. This alert led the FTC to discussions with members of the Antitrust Division of the Department of Justice who have expertise in the business activities of financial institutions and payment card networks. The report said that based on information the FTC collected, the agency is now investigating whether payment card network rules violate Durbin Amendment debit interchange regulations or routing rules.

The report took note of the Justice Department's antitrust investigation into Visa Inc. routing policies, first acknowledged by Visa in a U.S. Securities and Exchange Commission report filed in November 2012. Visa said the Justice Department is looking at its PIN debit gateway service and whether Visa inhibited merchant debit card routing.

Durbin impact on CUs and community banks

The Senate Appropriations Committee raised concerns that the Durbin Amendment regulations might reduce interchange revenue for the credit unions and community banks that are exempt from said regulations. In its report, the FTC noted that a recent General Accountability Office study concluded that, on average, these institutions suffered no revenue decline as a result of Durbin.

"This is consistent with early reports that the payment card networks had adopted a two-tier fee structure for exempt and nonexempt issuers," the FTC stated. "Now that merchants have new choices for routing to lower-cost processors, it appears that payment card networks and other processors have begun to compete for merchant business by offering a range of interchange rates."

The commission added it has uncovered no evidence that payment card networks have actively tried to inhibit the ability of small banks and credit unions to compete with large financial institutions for debit card customers.

The report also indicated that the Durbin Amendment regulations have resulted in competing interchange fees ranging from 15 cents to 54 cents per transaction, depending on the size of the bank and the type of transaction.

Enforcement efforts

The FTC report pointed out two instances in which the commission took action against payment processors that have allegedly engaged in illegal debit card business practices. In one case, the FTC filed a complaint against "scores of companies, including payment processors and others," who allegedly lured customers into "trial" memberships, bogus government grants and phony money-making schemes. The FTC alleged these operations resulted in more than 500,000 chargebacks and reversals on credit and debit card accounts.

Regarding the other case, the FTC said that in September 2012, it mailed $345,000 in refunds to 100 merchants who were victims of debit and credit card processing fraud by which the retailers were falsely promised hundreds and thousands of dollars in processing fee savings.

"The defendants also allegedly falsely promised that they would buy out merchants' equipment leases if they accepted the offer, failed to disclose fees, and concealed pages of fine print with important contract provisions until after merchants had signed contracts," the report said.

In addition, the FTC said it is examining three areas of consumer concern with mobile payments: dispute resolution, data security and privacy. "Given the potential concerns raised, and the ongoing growth in this area, the agency will continue to monitor mobile payment developments," the report stated.

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